Download Neoliberalism - De Anza College

Neoliberalism




Introduction – Rise of Neoliberalism
Neoliberal tradition
Neoliberal diagnosis
Neoliberal prescription
• Fiscal austerity
• Privatization
• Trade liberalization, currency devaluation,
abolition of marketing boards
• Retrenchment and deregulation

Conclusion
Neoliberal tradition





Individuals rational utility maximizers
Self-interested
Act rationally and efficiently
Left to pursue their own narrow selfinterests, society as a whole benefits
The less state the better
Hayek and the Chicago school




Monetary policy
Governments tighten money supply
during high inflation
Loosen it during times of recession
Task of government – stabilize
monetary growth
Neoliberal political theory



Stressed individualism, saw individuals as
building blocks of society
Minimalist state produced better economy
and society
Modern liberalism = society contained
many historical inequalities; only state
could level the playing field to give all
people the same degree of freedom and
opportunity
Neoliberal political economy




People behave according to self-interest; they
seek out opportunities to maximize gains
If opportunities are in market, self-interested
behavior creates spin-off benefits, including new
jobs, products, etc.
Solution: reduce size, role of state; free up
market and make it attractive to entrepreneurs;
remove opportunities for corruption, rentseeking, and other economically harmful
behaviors
Policy recommendations: less government
intervention, more freedom in the market,
abandon ISI in favor of outward orientation
Neoclassical prescription



Structural adjustment seeks to make state
and market more efficient to accelerate
growth and eliminate waste
Places market at the center, relies on
individual initiative, creativity, and
ingenuity
Structural-adjustment programs (SAPs)
• fiscal austerity
• privatization
• trade liberalization, currency devaluation, and
abolition of marketing boards
• Retrenchment and deregulation
Fiscal austerity









Reductions in government spending
Tends to promote inflation
“Crowds out” private investors
Inhibits investment
Private investment becomes cheaper, and
environment for business more attractive
Lowers costs of borrowing, which should
encourage investment
Reduces overall consumption
More goods for export
Foreign exchange should flow in, stimulating
economic growth
Privatization



Abuses and inefficiencies often
associated with public firms
Private firms have greater interest in
maintaining efficiency and
profitability
Raises money for cash-starved
governments, enhances operation of
market economy, improves efficiency
and performance of privatized firms
Trade liberalization, currency
devaluation, marketing boards






Maximizing free flow of goods and services
Trade liberalization -- eliminate/reduce
restrictions on imports; devaluation
Domestic market liberalization – eliminate price
controls and marketing boards; devaluation gives
producers of export goods incentive to increase
production
Firms have to find ways to lower costs
Comparative advantage
Devaluation boosts agriculture by giving exportcrop farmers increased income; farmers increase
output
Retrenchment and deregulation


Free market and entrepreneurs; enable
market to function more effectively;
encourage efficient resource allocation
Retrenchment addresses problem of
corruption; reduces chances for abuse
• Opportunities for rent-seeking diminish
• Less patronage appointments
• Fewer chances to use public firms or marketing
boards to skim resources
Conclusion



Losers = large, protected industries
producing for home market,
inefficient state firms
Winners = export industries, smaller
firms, and farmers, especially
export-crop farmers
5/3, strengths and weaknesses of
neoliberalism in practice